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Neuberger Berman was knocked around more than most asset managers in the treacherous seas of the 2008 financial crisis. The 73-year-old firm had only recently been lashed to Lehman Brothers when the investment bank foundered and ultimately failed. Buyout firms proposed a lifeline, but they fell short as the financial crisis deepened, leaving Neuberger's leaders to improvise an employee buyout during the most punishing financing environment in memory.

Yet, four years later, Neuberger is freshly invigorated and focused on the essentials in the way disaster survivors tend to be. Its business is in sturdy condition, its fund performance is outpacing most peers and its strong investment culture has been affirmed.

If the new Neuberger is in some ways "a $200 billion start-up," as one executive characterizes it, it is also one of the country's premier and most deeply rooted asset managers. Roy Neuberger, a founding partner and guiding force of the firm, died just two years ago, at the age of 107. Until he was nearly 100, he came into the office every day.

Thomas Reis for Barron's

For all the drama Neuberger has undergone in the past 15 years -- going public in 1999 after 60 years as a partnership, being absorbed by Lehman in 2003 and then set adrift five years later -- Neuberger is in some ways now much closer to the firm that Roy Neuberger ran than it has been in years, with its focus squarely on its client base, and not on the demands of a parent company or public shareholders.

"Our mission is totally different as part of an employee-controlled partnership," than it was as a subsidiary of a bulge-bracket investment bank, says Neuberger Chief Executive George Walker. The 43-year-old Walker, a former Goldman Sachs partner, was hired by Lehman in 2006 and soon found himself steering Neuberger through Lehman's chaotic demise. His thoughtfulness -- as he listens to a question, he often closes his eyes tightly before coming up with a careful and articulate answer -- has served the firm and its customers well. "Now, unlike most competitors, we measure success by how clients, partners and employees feel about the place," he says. "It changes the pressures if you're in my seat." Rather than gunning for growth for its own sake, he can focus the firm on "being a good steward of client capital and the franchise."

The stability that has long characterized the firm is still in place. More than 95% of its 400 investment professionals from before the 2008 disruption are still with the firm; 80% have been with the firm for more than 10 years. That continuity is present in the firm's post-Lehman headquarters: Located in an unfashionable part of Manhattan, just south of Grand Central Terminal, the offices are nondescript save for pictures and sculptures from Roy Neuberger's world-class art collection around nearly every turn.

MOST IMPORTANTLY, THAT commitment shows in Neuberger's performance. More than 90% of its equity and fixed-income assets have outperformed their benchmarks over the past 10 years (as of June 30). Its mutual funds are a relatively small, though notable, part of its business; Neuberger has just $29 billion in 31 funds, though that's up about 50% since 2000. Its addition of a global asset allocation fund in 2010 made this the first year Neuberger qualified for the Barron's Lipper ranking of the best fund families: The firm finished third overall out of 58 families ("Worth the Risk," Feb. 6).

NEUBERGER'S STORIED PAST has finally found some resolution this year. In a bid to shore up capital, Lehman had negotiated a deal for more than $2 billion to sell the firm to Bain Capital and Hellman & Friedman in the summer of 2008. But the deal, which was in part contingent on the level of the S&P 500 index, fell apart when the market collapsed.

Neuberger's management quickly scrambled to put together an employee buyout, financed by a preferred stock issue with a dividend set to rise over time. The deal valued the company at $920 million. Employees garnered 51% of the firm; the Lehman estate, controlled by creditors, owns the rest.

CEO George Walker: Building on Neuberger's strength and stability.
Courtesy of Neuberger Berman

Earlier this year, Neuberger completed a debt offering to redeem the preferred and help employees acquire increasing portions of the firm in agreed-upon phases, reaching 64% by the end of this year on the way to 100% by early 2016. A system has been created to share firm equity in a way meant to retain senior professionals and create incentives for younger generations of employees.

Neuberger is now one of the largest employee-owned asset managers, and likes to compare itself to Wellington Management, the venerable Boston firm that has nurtured an impressive investment culture while passing ownership seamlessly from one generation to the next. Based on the firm's assets and asset mix, it's probably worth at least $3 billion today.

Neuberger's time with Lehman was culturally challenging but provided it with the engines for growth it's using today. Following its founding in 1939, Neuberger was mainly a manager of private family wealth and later keeper of a smallish equity mutual fund array. In terms of cohesion, though, it was little more than an amalgam of small, semiautonomous teams of wealth advisors and portfolio managers.

The firm is now more balanced and more global, in large part thanks to the (once-) deep-pocketed and internationally oriented Lehman. Lehman acquired Lincoln Capital, a long-tenured Chicago-based institutional bond manager, and merged the firms, later adding to private-equity shop Crossroads, all the while distributing products through Lehman's far-flung global sales network.

As a result, Neuberger's $200 billion in assets breaks down as 45% equities, 45% fixed income and about 10% alternative categories such as hedge funds and private equity. By distribution channel, 55% is institutional, 25% is mutual funds sold through third-party investment advisors, and 20% is in direct private-client accounts.

NO MATTER HOW THE CAPITAL is conveyed to Neuberger, the money is managed the same, by distinct investment teams known by name rather than style-box category. A hallmark of the firm's early years, there are 40 teams, each with its own process and penchant for lively debate. Now, though, they're watched over by a central risk committee and by President and Chief Investment Officer Joe Amato, a longtime sell-side research veteran who took on his role during the Lehman interregnum.

The teams are known internally by such neighborly shorthand monikers as "The Straus Group," rather than "large-cap value" (longtime investor Marvin Schwartz's area), or even more simply, "Ann and Tom," for high-yield bond, run by Ann Benjamin and Tom O'Reilly, who have been plying speculative-grade debt management together for nearly two decades.

Neuberger's Biggest Funds

Neuberger Berman has $29 billion in 31 funds, but the lion's share—nearly 40%—of those assets are in Genesis, its biggest fund. Its roster may be small, but its funds consistently outperform.

Return

Fund name

Ticker

Category

Assets ( bil)

1-Yr

3-Yr

Neuberger Genesis

NBGNX

Small-Cap Growth

$11.6

21.2%

13.4%

Neuberger Hi Inc Bd

NHINX

High Yield

3.1

18.1

11.8

Neuberger Eqty Inc

NBHAX

Equity-Income

2.6

19.4

14.5

Neuberger Soc Resp

NBSRX

Multi-Cap Core

1.8

20.7

11.0

Neuberger LC Value

NPRTX

Large-Cap Core

1.5

25.0

6.7

*Performance figures as of 9/30/12.

Source: Lipper

Though the teams have often come from elsewhere or were taken on via acquisition under Lehman, they tend to share certain unifying tendencies: a true, bottom-up security-selection process, a priority on protecting principal first, and a healthy disdain for hewing strictly to benchmarks or rigid, marketing-driven style silos. Amato points out that Neuberger's heritage as a private manager for wealthy families has bequeathed an absolute-return mind-set.

The firm's most notable fund is the $11.7 billion
Neuberger Berman Genesis fund
(ticker: NBGNX). Run by Robert D'Alelio and Judy Vale (or "Bob and Judy") for the past 16 years, Genesis comprises nearly 40% of the firm's $29 billion in mutual fund assets. With an average annual return of 11.5%, Genesis has beaten the Russell 2000 Value index by about three percentage points a year over the past decade.

D'Alelio and Vale, who also run $2.8 billion in institutional money and separate accounts, hunt for smaller, cheaply valued stocks with a safety-first approach, privileging self-financing companies with strong free cash flow that can weather all sorts of economic environments. Once they find them, they rarely sell, which means these small-cap buyers end up holding some large companies, and their fund is currently classified by Morningstar as a mid-cap growth vehicle. They simply don't care. Nor are they shy about closing the fund to new investors when they see a scarcity of names that meet their criteria.

VALE DESCRIBES COMING TO meet Neuberger folks in 1992, while considering taking a job there. To her surprise, the group ended up "fighting and arguing" over investment ideas, relishing principled disagreement. "Everyone here is a stock junkie, and there's pride of authorship of ideas."

Neuberger hosted 1,400 meetings with public-company management teams last year, gatherings that tend to be well attended and spawn vigorous debates among Neuberger analysts and portfolio managers about the investment merits. While there is a centralized research effort, there is no "house view" on a stock that must be adopted by the individual portfolio managers.

Benjamin and O'Reilly, co-managers of $23 billion in high-yield bond assets -- including the
Neuberger Berman High-Income Bond fund
(NHINX) -- arrived via the Lincoln Capital acquisition, but similarly try to insulate clients from risky market environments and tack away from their benchmark when necessary. "We're a disciplined credit shop," says Benjamin. "We protect on the downside when default rates are rising and participate on the upside" as the market fundamentals improve. Like Vale and D'Alelio, the high-yield team likes to tell clients that if their funds are outperforming in a risk-on, momentum-type market phase, then they're doing something wrong and should be fired. The fund has outperformed its benchmark over the past five years by dialing down risk ahead of the '07-'08 crisis.

Such a legacy is hardly foolproof in averting over concentrated, ill-timed bets on certain sectors, even if the various teams making those bets came to them by separate processes. Its heavy tilt toward large-cap value teams left the firm freighted with too many energy and financial stocks ahead of the 2008-'09 bear market, after which asset levels and flows suffered.

Still, Walker says that while the firm was part of Lehman, "it used to be the hot committee to be on was new products. Now it's the risk committee, which is populated by senior, skeptical people, who thinks if it's saleable it's probably not a good idea."

The firm, for example, has resisted requests to launch a thematic sector product, such as a green energy fund. Neuberger also exited the money-fund business in 2010.

Of course, the firm as a whole doesn't mind selling something new, especially when the product draws on its internal strengths and serves an evident client need. Witness Neuberger's determined push into the burgeoning "liquid alternatives" segment, where institutional-caliber hedge-fund-style strategies are wrapped in a mutual-fund package offering low minimum investments and daily liquidity.

IT'S TEMPTING TO ASK WHETHER the evident vogue for volatility-damping absolute-return funds built to hold up in down markets but lag strongly rising ones is a matter of fighting the last war by exploiting investors' risk aversion. Yet Neuberger executives make the case that with "safe" bond investments yielding near zero, an aging investor population and squeezed pension funds, predictable return streams without major principal declines will serve an enduring purpose in portfolios.

It's also true that Neuberger leaders are not above expressing concern that some of their products might be too popular, or popular for the wrong reasons. Brad Tank, the firm's fixed-income chief, says, "The thing that's most troubling about the fixed-income environment, aside from the diminished yields and prospective returns, is the way retail [investors have] chased the market to the exclusion of everything else."

Neuberger's balance across asset classes, sales channels and regions allows it to be agnostic about where client needs and preferences drive growth, and what markets present the best growth opportunities in years to come.

Neuberger's independence and employee-ownership structure presents is a sort of test of industry's conventional wisdom, which holds that the mature, increasingly global business will come to be dominated by a handful of gargantuan firms plumbing $1 trillion or more in assets on one side, and tightly focused boutiques on the other.

And with a reported $1.1 billion in revenue last year and $261 million in profit, it has the wherewithal to continue to expand. Walker is adamant that he's not looking to go public or sell the firm.

In any case, it will no doubt remain independent until at least 2016, when employee ownership is scheduled to reach 100%.

Among the rare opportunities that being revived following a brush with extinction affords is the chance to assess a company's heritage and capabilities to formulate a fitting creed and credo. With the close guidance of Gerald Kaminsky of Neuberger's Kaminsky group, an investment advisor for nearly 50 years, management took as its mission statement, "To partner with our clients to achieve their unique investment objectives."

Not all that catchy, and bordering on bland fiduciary piety, perhaps. But Neuberger is the rare firm structured and positioned to profit only to the extent their clients thrive, free of growth-obsessed corporate masters or temporary public shareholders with other priorities.